Monthly Archives: October 2008

Prosecuting medical providers under the best of circumstances is never easy, but when your evidence suddenly evaporates in cyberspace, it’s a nightmare. That’s apparently what happened at the Medicaid fraud unit within the Office of Attorney General in Texas:

“A massive computer crash that destroyed hundreds of the state attorney general’s confidential documents may prevent scores of Medicaid fraud prosecutions and has revealed serious problems with a newly expanded state outsourcing of computer services . . . In an apparent oversight, the documents lost were not backed up – meaning that evidence crucial to convicting dishonest health-care providers who ripped off the state’s health insurance program for the poor may never be recovered.”

In all, 81 cases and eight-month’s work by 13 people in the AG’s office are out the window, according to reports this morning.

May this serve as a valuable lesson to fraud-fighters everywhere.

Update: October 30, 2008: The state of Texas has fined IBM $900,000 for failing to backup the AG’s data, according to this report. Ouch!

No law enforcement agency likely has interrogated more insurance crooks — especially ring leaders — than the California fraud bureau. In a recent conversation with outgoing fraud bureau director Dale Banda, we asked what he had learned from these fraudsters.

These crooks are savvy and seek to exploit the weaknesses in the system, Dale revealed. They know which insurers investigate aggressively and which don’t.

I recalled Dale’s comments this week when the photo below showed up in my inbox. The photo shows a handmade sign in one of those New York City clinics that specialize in no-fault auto claims. It’s not like health insurance: This clinic isn’t announcing that it doesn’t have contracts with specific health insurers. It’s telling the world that it won’t deal with these insurers because they investigate fraud aggressively.
Such aggression cuts into the profits of sham clinics. If all insurers were as tough as these four, the clinic owners might have to find another line of work.

I asked one SIU director why he thinks his company made the list. His one-word answer: “consistency.”

“The clinics have to know that we will not change our approach on the next claim filed nor will we pay for anything but legitimate medical care,” said Ken Jones of Travelers Insurance. “When these suspect medical providers realize that insurance carriers are taking this type of stand, they tend to look for easier targets.”

Each of these four insurers should view this sleazy sign as a badge of honor.

And the other major auto insurers in New York should ask themselves what they need to do to make the list.

These are trying times for insurance companies. In addition to tumbling stock markets and a credit crunch, premium growth is down, investments are lagging badly and the cost of doing business continues to climb. Property-casualty insurers have come a long way since record profits just three years ago.

The economy hasn’t been kind to insurance consumers, either. People have been dumping their low-mileage, high-premium cars; there’s a record number of abandoned properties; the worker pool is shrinking; and fewer people can buy health insurance on their own. All of this creates less demand for insurance products.

So it’s natural that stories abound about cost reductions within insurance companies — including their anti-fraud operations. There are plenty of stories on the street about companies that have downsized their investigative staffs, outsourced more anti-fraud activities, and delayed investment in new technology.

Interestingly, we hear just as many stories about insurers that have increased budgets over last year and plan to spend even more in 2009. In fact, a recent survey we conducted of 41 major insurers in the U.S. found that nearly half have increased resources for anti-fraud activities from last year either moderately or substantially. Only about 12 percent say resources have declined.

Insurers aren’t outsourcing anti-fraud activities in greater numbers either. Only 10 percent report more outsourcing in the last year, with the same percentage reporting less. The rest say there was no change. Looking ahead, 45 percent say they expect larger outlays for fraud in 2009 while only 13 percent indicate they’ll work with smaller budgets next year.

So what’s going on here?

There are likely two factors at work here. An enlightened insurer executive recently explained to me that the current economic conditions call for more investment in anti-fraud activities. He said he continually reviews his operation to see where increased investment would produce the greatest return. With declining policy counts, investing in sales and marketing likely won’t produce the returns they did just a couple of years ago.

Same goes for other insurer operations. Smart insurers are beefing up their ability to stop money flowing out the door needlessly, either through enhanced training of claims handlers or better use of technology. Same also goes for strengthening their underwriting. Getting the appropriate premium for the true risk exposure is more important than ever when profit margins are slim.

The second factor is the sense that today’s economic downturn fosters more fraud. During desperate times, decent people often commit desperate acts. The increases in auto giveups, home arsons and people stealing health benefits correlate with the downturn in the economy. A recent study by the coalition in 10 regions of the country found a record number of frauds involving car fires.

Add in the higher public acceptance of unethical behavior the coalition documented last year, and you can understand why more insurers are concerned about losses from opportunistic fraud.

So savvy insurers are investing in anti-fraud infrastructure, from tightening existing systems, to investing in predictive modeling technology to adding ground troops in hot area across the country.

Financial advisers stress that a troubled economy is the best time to buy depressed stocks and real estate. Years from now you’ll benefit handsomely. Same with insurers, except their investments in fraud will pay dividends almost immediately.

During last night’s presidential debate, John McCain said he would lower health insurance costs by forcing more competition on the industry. Living in a place where only about three insurers are currently accepting business from small groups, I’m all for more competition and expanding markets. But the way McCain would foster competition — by creating a national healthcare industry market — seems like an invitation to defraud.

McCain would remove state restrictions on health care coverage. Does that also mean he would lift state regulation? Would he replace it with federal regulation? If I live in Maryland and buy my coverage from a company in Arizona, which state has jurisdiction to regulate for solvency and for market conduct?

During the last 15 years, this country experienced two waves of bogus health insurers that ripped off hundreds of millions of dollars from consumers and small businesses who thought they were buying legitimate coverage. Would McCain’s proposal invite a third wave? Seems that reducing regulatory oversight would allow unauthorized entities to go undetected and again commit fraud en masse.

One of the top fraud-fighters in the West rode off into the sunset this week. Dale Banda, director extraordinaire of the California fraud bureau, retired Tuesday after a distinguished career in law enforcement.

Dale’s tenure at the nation’s largest fraud bureau and insurance department — as fraud investigator, supervisor, chief investigator, division chief and deputy commissioner — spanned the terms of five insurance commissioners. But his longevity tells only part of the story. Dale not only spurred his agency to be among the best, if not the best, but also shared his ideas and experience with fraud bureaus in states that aren’t as well resourced.

In states with elected commissioners, change in the party affiliation of the top regulator usually means the ouster of the fraud bureau chief. But Dale Banda was a deserving exception. When Commissioner Steve Poizner was elected, the new commissioner was astute enough to recognize the professionalism that Dale brought to fraud-fighting. Dale was retained and the following year, California reported the highest number of convictions ever for insurance fraud in a state — 1,700.

While California leads in most statistical categories in fraud-fighting — as it should, being the most populous state — there’s also a qualitative excellence associated with the California fraud bureau. I think that’s a direct reflection of Dale’s character and aptitude in forging solid relationships with insurers, prosecutors and colleagues in other states. Leading an agency of 300-plus staff, he was a stalwart advocate for his investigators, seeking more training opportunities and pushing for higher pay.

When asked this week about the best part of his career, Dale didn’t hesitate to say that his satisfaction came from taking on cases that clearly made a difference in the lives of his fellow Californians. Dale Banda did that and more. We wish him well in his retirement, but we have a feeling he’s not finished yet in seeking to improve the lives of others.